Sany calls off $3.3 billion Hong Kong IPO

Sany Heavy Industry, a Chinese machinery maker, has postponed its planned Hong Kong IPO of up to HK$25.9 billion ($3.3 billion), citing the extreme market volatility.

The decision means the Hong Kong listing prospects for Sany's smaller domestic rival, XCMG Construction Machinery, are also looking gloomy. XCMG originally planned to go head-to-head with Sany and launch the institutional bookbuilding this week, but a lack of investor interest made the company delay the offering. XCMG is aiming to raise up to $2 billion from its Hong Kong IPO.

This is the second public offering that has been cancelled this week. On Wednesday, Xiao Nan Guo Restaurants Holdings, a small-cap Chinese restaurant chain, told investors that it had decided not to proceed with its share sale, which was set to raise between $71 million and $95 million.

Indeed, the market is not in a favourable condition. Hong Kong's benchmark Hang Seng Index dropped 4.85% yesterday, making it the worst performer in the region. The index has fallen 22% year-to-date. Sany Heavy, which is already listed in Shanghai, has seen its A-share price fall 30% so far this year. It lost 3.3% yesterday.

Even companies that have managed to complete their IPOs have received lukewarm demand. The retail tranche of Hongguo International's $147 million deal was significantly undersubscribed and the Chinese shoemaker and retailer ended up selling its 500 million shares at the bottom end of the HK$2.30 to HK$3.24 price range.

Sany Heavy started institutional bookbuilding on Monday and was planning to kick off the retail offering two days later. However, the company said on Tuesday that it would delay the retail portion of the offering because it needed more time to meet investors. And yesterday, it postponed the deal altogether until further notice.

However, investors were told that the management will complete the international roadshow as planned "with a view to relaunching the transaction, on an accelerated basis, once conditions in the market have improved”.

Other sizable deals in the market include the $1. 6 billion to $1.9 billion Hong Kong IPO of Citic Securities, China's largest brokerage firm. This deal is said to be doing well, however. It is supported by six cornerstone investors, which have agreed to buy around half of the total offering, as well as several anchor orders.

New China Life Insurance, the country's third-largest life insurer in terms of premiums, last month announced an up to $4 billion IPO split between Hong Kong and Shanghai. It was the first company in the region to unveil a multi-billion-dollar deal after Standard & Poor’s downgraded the US’s credit rating, but it didn't specify the timing of the offering.

The life insurer has hired eight banks -- Bank of America Merrill Lynch, BNP Paribas, China International Capital Corp, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan and UBS -- to manage the dual-listing.

Sany Heavy makes engineering machinery for construction use and is the Shanghai-listed arm of Sany Group. Another company under the group, Sany Heavy Equipment International, which makes coal mining equipment, listed in Hong Kong via a $309 million share sale in 2009.

Sany Heavy is offering 1.34 billion new shares at HK$16.13 to HK$19.38 each, which suggests it could raise between HK$21.6 billion and HK$25.9 billion. At the low end, the price represented a 12.1% discount to its closing price in Shanghai on Friday (Rmb15.04), while the top end equalled a 5.6% premium. The discount has widened in the past few days as the A-share price has risen to Rmb15.28.

The price range values the company at 12.2 times to 14.7 times its 2011 forecast earnings, and at 9.1 times to 10.9 times its 2012 earnings.

Sany Heavy initially intended to fix the IPO price on September 26 and to start trading on October 3. However, those two dates were already being pushed back as a result of the retail offering being delayed. BoA Merrill Lynch, Citi, Citic Securities and ICBC International are joint bookrunners of the deal.